A.M. Best’s Bermuda market is in a position to see a return on equity of slightly better than 10% for this year, the rating agency has noted in a new report.
In it’s 2012 Special Report: Bermuda - Market Review, A.M. Best noted that although 2012 won’t see the high level of return seen at a near-peak in 2006 (of 19% ROE), this year has been relatively favourable.
“While people may long for the days of 16% or 19% average ROEs, 10% in 2012 appears relatively attractive when compared with an annual yield of roughly 1.6% on 10-year U.S. Treasury bonds,” the report noted.
Underwriting performance has also been strong for the year, A.M. Best said, with the Bermuda market composite reporting an 88.6% combined ratio through Sept. 30.
The market has been reporting net profits for every year since 2007, except 2008, the rating agency said. That’s despite record losses in 2011 from major natural catastrophes.
A quiet year in terms of natural catastrophes has contributed to the positive underwriting results for the market, A.M Best noted. “Hurricane Sandy is still somewhat of a wild card, but even in a worst-case scenario, most Bermuda market companies should be able to hold their footing based on results through the first nine months of the year,” the company said.
In its report, the rating agency said it will also begin tracking hedge fund backed reinsurers, in addition to its other three categories in the Bermuda market- Bermuda Catastrophe, Bermuda Hybrid and Global Reinsurance.
While hedge fund backed reinsurance companies are probably not the new model for the future, “it may have its niche in the market for some time to come,” A.M. Best said.